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Regulatory efforts to impose transparency on the credit derivative markets by forcing traders to use a clearing house are “doomed to fail” if they do not secure the support of major investment banks, a new report has claimed.

Regulators have been scrutinising the vast over-the-counter derivative markets in recent months, after they were blamed for contributing to the uncertainty that brought down Lehman Brothers.

Europe’s Commissioner for the internal market, Charlie McCreevy, recently warned that he was “keeping open the option of legislating” to reduce risk posed by credit default swaps.

London-based clearing house LCH.Clearnet and futures market Liffe responded to this scrutiny by launching a credit derivative clearing service a month ago, but banks have yet to use the new system.

However, Tabb Group, a New York-based research firm, said banks recognise the advantages of central clearing and are likely to adopt it in due course, but cautioned they would find ways to circumvent any rules imposed on them.

Tabb Group senior analyst Kevin McPartland wrote: “The major dealers understand the benefits [of CDS clearing] all too clearly but dislike the idea of regulators forcing their hand…The CDS market must work as a partnership between regulators, dealers and investors – not a dictatorship.”

McPartland said banks appear keen to use Liffe’s new service, and that the delay is operational rather than a demand issue.

He said: “Banks clearly have a lot to deal with from many different angles. They are making budget cuts as their revenues decline, and these cuts will have some impact on IT projects such as clearing house links.”

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The European Commission should work with other regulators to create a standard approach to CDS clearing, rather than taking the issue into its own hands, McPartland added. “This approach would take longer, but the results would diminish the ability of dealers to play “pick your favourite regulator,”” he said.

Other exchanges, including the Chicago Mercantile Exchange, the Eurex derivatives arm of Deutsche Börse and the Atlanta-based IntercontinentalExchange, plan to launch their own CDS clearing houses in the coming months.